Guggenheim downgrades Apple, drops $245 price target

Analyst Robert Cihra has lost faith in “growth via ASPs,” won’t hazard a guess on where the stock is headed.

From a note to clients that landed on my desktop Wednesday morning:

Key Message: Whereas a year ago AAPL looked like a table-pounder when iPhone units were weak but about to be more than offset by a big jump in ASPs (+17%Y/Y in FY18), which ultimately drove Apple’s best iPhone revenue growth in 3 years, we rather now find that setup flipped with “growth via ASPs” widely known but just as those ASPs start to anniversary. Over the past 10 years, Apple’s iPhone ASP has increased a dramatic + $220, or 40%, reflecting its growing value to both consumer and business markets, but nearly HALF of all that just came in FY18 alone, making a period of digestion now likely…

With the iPhone screen an incredibly valuable piece of real estate, we continue to forecast Apple growing its Services revs +19%Y/Y in FY19E… But while that model continues to grow and helps support the stock’s P/E, we still consider Apple a “product” company. Ever since Apple launched its iPhone Upgrade Program 3 years ago, we have thought it could eventually migrate to selling its entire product+services portfolio as some sort of “subscription” to loyal users who upgrade anyway (e.g., $1K/year to be part of the Apple ecosystem, with a fresh iPhone, iPad, Mac, etc.), but have not seen it move that way.

Downgrades rating to Neutral from Buy. Removes $245 price target.

Cue Cihra’s revenue growth bar chart:

guggengeim downgrades

My take: He still considers Apple a “product company.”

4 Comments

  1. Jonny Tilney said:

    As dear Horace told them already: ‘it’s a customer company’. A long term customer company.

    2
    November 14, 2018
    • David Emery said:

      One challenge for Apple is keeping customers. I’m not convinced the current Mac line is well positioned that way. I just bought a “new” Mac, another 2015 model. PED talks about the MagSafe connector as his key feature, for me it’s the SD card slot.

      I also have 3 Minis in the house, but since the new Mini doesn’t have an upgradeable ‘disk’ drive, I’m not rushing out to replace any of them. That’s in part due to the large cost for drive upgrades in the new Mini. (At least the user can replace the RAM; OWC’s RAM for the new Mini is about 1/2 the cost of Apple’s RAM.)

      And a good friend of mine recently told me “Got rid of my last Mac.” He found that he could get much better performance for the apps he uses by building his own Windows machines. In his case, the ‘killer app’ is Adobe Lightroom. He used to use Aperture, until Apple dropped that. Now I refuse to send any more $ to Adobe. I’m sticking with Aperture until an alternative shows up.

      I’m still pretty firmly committed to the Apple ecosystem. It’s just that the newer products aren’t producing strong reasons to buy them, vs living with what I already have.

      1
      November 14, 2018
      • Fred Stein said:

        Figure 3 provides a cautionary tale. Ignore any single short term component. By extension, ignore anyone who makes a big deal of any short term component or trend.

        Apple is growing: Top line; Bottom line; and aggregate installed base.

        2
        November 14, 2018
      • Jonny Tilney said:

        If you are (still) sticking with Aperture then I can understand sticking with older Macs too. I would too if I refused to stump up a few dollars for Lightroom (which is de facto what you need if you’re pro today). Although I have to say Aperture still runs v nicely on my ’17 MBP. 15″.

        But, if you believe your two examples are part of a bigger picture, then forget it.

        1
        November 14, 2018

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